1

Should Kawasaki build

its manufacturing plant in
an EPZ in Bangladesh?
2

Should Kawasaki build

its manufacturing plant in an
EPZ in Bangladesh?

Prepare for
Glen Toy
Regional Business Manager
Kawasaki Motors
1-14-5, Kaigan, Minato-ku, Tokyo 105-8315, Japan.

Prepare by
Group:
, Section:B
Department of Finance
University of Dhaka

May 7,2022
3

Group: MoneyPenny
Department of Finance
University of Dhaka

May 7,2022

Glen Toy
Regional Business Manager
Kawasaki Motors
1-14-5, Kaigan, Minato-ku, Tokyo 105-8315, Japan.

Dear Glen Toy:

Here is the report on the advantages and disadvantages Kawasaki will face if it builds its
manufacturing plant in an EPZ in Bangladesh that you asked us to conduct on April 17.
Our study on numerous studies led to the conclusion that setting up a manufacturing plant in a EPZ
will be beneficial in many ways. As Kawasaki do not have any plant in this region to export parts it
would not be convenient for Kawasaki to build its plant in an Economic Zone. Furthermore,
Kawasaki will enjoy benefits of EPZ such as tax benefit, new technology, export oriented product,
improved human resource etc.

We appreciate you choosing our group for this assignment. If you should need any additional
research or assistance in implementing our recommendations, please contact us at 312-222-2567.

Sincerely Yours,

Group: MoneyPenny
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Table of Contents

Executive Summary

1. Introduction
2. Sources of Information
3. EPZ
3.1. Advantages
3.2. Disadvantages
4.Industry Leader’s Choice
5.Analysis
6.Recommendation
7.Bibliography
5

Executive Summary

EPZs usually are built to enhance commercial and industrial exports by encouraging economic
growth through investment from foreign entities. Incentives such as tax exemptions (Exemption
from Central Sales Tax, Exemption from Service Tax and Exemption from State sales tax) and a
barrier-free environment are the main attractions of an EPZ. We will get some facilities such as
Secured and protected bonded area, Off-Shore banking, Back to Back L/C, Import from DTA
(Domestic Tariff Area),10% sale to DTA (Domestic Tariff Area) etc. The main advantages of
export-processing zones are tax incentives, lower land rentals, exemption of import, export and
value-added taxes and reduced regulatory oversight in administrative and customs procedures
which we will get by establishing our company in Bangladesh.

While setting up an EPZ it may face some hurdles. In case of collecting materials from local
suppliers, the EPZ firms don’t get the materials with expected quality and quantity. Sometimes, the
gains from foreign exchange earnings may be overstated. Also there can be dichotomy between
gross and net exports (the net export gains may not be impressive because of high importation cost);
lack of skilled employee for which company has to bear a huge cost to make them skilled. High cost
of imported materials and provisional infrastructure (electricity, water, gas etc.) force them to spend
a lot. Limited transfer of technology and high-tech machinery is also a big hurdle.

BHL – Bangladesh Honda Private Limited is the fastest growing brand in the motorcycle market of
Bangladesh. Honda has recently revealed its new plant in Bangladesh, situated in Abdul Momen
Economic Zone. It has an initial annual production capacity of 100,000 units of motorcycles. Honda
established their plant in an economic zone rather than in an export processing zone because they
already have large factories in the sub-continent (in India and Pakistan), which meet the demand for
parts in the Bangladeshi market.

Kawasaki mainly wants to establish a new manufacturing plant in Bangladesh to meet its parts
demand it this region. As current time is really competitive specially in motors section, Kawasaki
need to build its plant in the most suitable place that will provide enough facilities and incentives.
Many competitors of Kawasaki such as Honda, Runners already has manufacturing and processing
plant in this region. The incentive and facilities provided by Bangladesh government and BEPZA
will certainly help Kawasaki thrive really fast and keep up with its competitors in this region.
6

Should Kawasaki build

its manufacturing plant in an  I
n
EPZ in Bangladesh?
c
i

Introduction
dentals of Authorization and Submittal

This study of EPZ’s in Bangladesh as a potential site for manufacturing plant for Kawasaki is
submitted to Glen Toy Regional Business Manager, on May 7,2022. As authorized on April 17, the
investigation was conducted under the direction of Abdullah Al Arman of Group MonneyPenny.

 Objective of the Study

There are significant advantages of building manufacturing plant in an EPZ that will improve
Kawasaki’s market in this region but that comes with some opportunity cost and some
disadvantages as well. Our study was to discover if it would be a right decision to build Kawasaki’s
manufacturing plant in an EPZ in Bangladesh rather than to build it in any other place.
7

Methodology

 Sources of Information

Manufacturing plant is a billion-dollar project, so to take a decision like this the information should
be from reliable sources and should be scanned for errors. In this paper the necessary information
collected from mainly secondary sources. Secondary sources of data are of two kinds. Internal
sources of data and External sources of data. Internal sources of data are- Annual Reports of
BEPZA from the year last five years including eight EPZs and BEPZA's website. External sources
of data are- Bangladesh Economic Review, Bangladesh Bureau of Statistics, Bangladesh Economic
Update, several books, articles, journals, newspaper, web browsing, financial tools etc.
8

EPZ

 Definition

The Concept of Export Processing Zone (EPZ) is not new today. It is a special case of 'Free Trade
Zone' which combines trade and manufacturing activities of a country. The central idea of EPZ is to
provide incentives for investment, especially to motivate multinational corporations or companies to
use the Zone as a low cost production base for labor intensive components, such as manufacturing,
assembling and middle-stage processing for export to home markets or to other world markets. The
emphasis obviously is not on the development of domestic manufacturing capability as such, but on
the role of multinational companies for processing for export. Therefore, essentially "an EPZ is a
foreign enclave with obvious extra territoriality in decision-making by units located in the Zone".

In the whole process the search for low-cost labor is the main motivation of foreign investment and
further that multinational firms can be induced through incentives to locate their labor intensive
stages of production in the EPZs of developing countries. The incentive scheme is critical for it is
what makes the production operation relatively cheap in the Zone as compared to domestic tariff
areas. In general, the incentive scheme includes duty-free import of capital goods, raw materials,
components, spares, tools and other inputs. In addition, there are incentives in the form of tax
concessions, both direct and indirect, at least for some initial years; finance at confessional rates of
interest; power and infrastructure facilities at reduced rates, etc.

The Export Processing Zone is normally located near a major port and in proximity to an assured
supply of labor in order to reduce the transportation costs. The basic thrust of the incentive scheme
is to make export development on a meaningful scale by correcting the distortions in the domestic
tariff areas. Probably the same objective can be achieved through incentives (e.g. duly draw back,
export subsidies, etc.) within the domestic tariff area itself, but the presumption is that the
objectives can be achieved more effectively in the EPZ. Usually EPZ can be of three types:

i) Manufacturing
ii) Warehousing and
iii) Combination of both.
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 EPZs in Bangladesh

The EPZs of Bangladesh are of manufacturing type. About 850 Export Processing Zones or Tax
Free Zones or Free ports of the world enable manufacturers. Assembler importers or exporters to
benefit from a variety of customs privileged facilities by offering them guarantees, incentives and
other advantages. Region wise North America has 320 EPZs, Central America 42, South America
41, Europe 81, Africa 47 and Asia and the Pacific 275. The United States has the maximum number
of 213 EPZs, followed by China with 123 and Mexico 108. By seeking the sheltered areas best
suited to their needs, components engaged in processing and assembling can save on taxes and
many other costs including transportation expenses, plant rentals and excess wages of labor, which
is the single most important factor for cutting production cost. From the very beginning, the EPZ
has been considering one of the most important administrative instruments for providing free trade
status to manufactured exports. The importance of EPZ can be regarded as a policy instrument tends
to diminish an economy in order to be successful in its out world-oriented strategy. Developing
economics seeking to enter or expand manufactured exports require adequate physical trade
infrastructure and a legal and regulatory environment favorable to private business and exporting
industries.

The history of Export Processing Zone dates back several hundred years. Historically, a tool for
aggressive commercial power, the EPZ dates back to the time of ancient Phoenicians, when safe
passage was the chief guarantee offered to foreign traders visiting tire (now in Lebanon) and
cartage, a pre-mediaeval city in the Mediterranean belt. Later, the idea was adopted by the Greeks
and then by the Romans, who developed these into launching pads for economic and political
domination's. The EPZs also proved their worth by helping to enrich members of the Hanseatic
League (During that time Hanseatic was in north of Germany). In the mediaeval age, King Alfred,
the Great of England introduced the concept of Export Processing Zone in his country. In 898, King
Alfred guaranteed the Archbishop of Canterbury, the right to anchor ships at Queenhithe in London
without paying normal customs duties and royal tax (during that time, income tax was known as
royal tax in England). Many other governments took up the idea of extending Export Processing
Zone facilities, from the year 1009. One early example that resembles the zones of today was the
Steelyard in the city of London. That was a special part of the port near London reserved for
businessmen from the cities of north Germany. They were exempted from paying customs duties on
goods passing through the Steelyard. In those days one had to pay customs duties on export not on
imports. The modern era of Export Processing Zone began with the United States establishing its
first Export Processing Zone in 1930. But the Shannon Free Zone of the Eire is considered as the
10

model of modern export processing zone. The Gibraltar Export Processing Zone is the oldest among
the operating EPZs of the world Gibraltar established its EPZ in 1705. In Asia, the Macao Free
Zone is the oldest. It has been operational since 1829. The Macao Free Zone mainly produces
garments, furniture, rubber goods, toys and novelty items. Taiwan took the process a step further
with the establishment of a science part at Hsinchu, which aims to shift the emphasis of investment
away from labor-intensive assembly industries, towards advanced technology.

An Export Processing Zone or a Free Trade Zone can help alleviate some development problems. It
can help earn foreign exchange, generate employment, expedite technical exchange and regional
development. Export Processing Zones or Free Trade Zones can be a gateway to development for
many countries. The zone can be a seed, which falls on a fertile ground, and build strong roots and
spread their branches over the rest of the economy. In many countries, political and business leaders
see the success of a less regulated environment and it spreads into the domestic economy until the
domestic economy and the EPZ have very similar regulations. This has happened in South Korea
and China. The EPZs of these countries have been very successful. After 1990, the EPZs of these
countries have been working as the most stable source of foreign exchange earnings than the
minerals or oil. Successful zones are not passive recipients of investment. Successful zones are
active participants in the decision process that investors make to locate their factories in their zones.
This is an important principle. Successful EPZs have developed promotional programs that
influence the decision of some of the largest corporation of the world.
11

Benefits that Kawasaki will enjoy

 Incentives & Facilities

Fiscal Incentives:

Duration of Tax Exemption Rate of Tax Exemption

First 02 years (1st  and 2nd year) 100%

Next 02 years (3rd and 4th year) 50%

Next 01 year (5th year) 25%

1. Tax Exemption:

2. Duty free import of construction materials

3. Duty free import of machineries, office equipment & spare parts etc.
4. Duty free import and export of raw materials and finished goods
5. Relief from double taxation
6. Exemption from dividend tax
7. GSP facility available
8. Accelerated depreciation on machinery or plant allowed
9. Remittance of royalty, technical and consultancy fees allowed
10. Duty & quota free access to EU, Canada, Norway, Australia etc.

Non – Fiscal Incentives:

1. 100% foreign ownership permissible

2. Enjoy MFN (most favored nation) status
3. No ceiling on foreign and local investment
4. Full repatriation of capital & dividend
5. Foreign Currency loan from abroad under direct automatic route
6. Non-resident Foreign Currency Deposit (NFCD) Account permitted
12

7. Operation of FC account by 'B' and 'C' type Industries allowed.

 Facilities:

1. No UD, IRC, ERC and renewal of Bond license

2. Work permits issued by BEPZA
3. Secured and protected bonded area
4. Off-Shore banking available
5. Import on Documentary Acceptance (DA) basic allowed
6. Back to Back L/C
7. Import and Export on CM basis allowed
8. Import from DTA (Domestic Tariff Area)
9. 10% sale to DTA (Domestic Tariff Area)
10. Customs clearance at factory site
11. Simplified sanction procedure
12. Sub-contracting with export oriented Industries inside and outside EPZ allowed
13. Relocation of foreign industries allowed
14. Accords Resident-ship and Citizenship
15. One Window same day service and simplified procedure.

Export & Import:

1.   Enjoys GSP benefits in EU countries, Japan, Australia, USA & Canada etc.

2.   No UD (Utilization Declaration), IRC (Import Registration Certificate), ERC (Export

Registration Certificate), & renewal of bond license is required.

3.   100% backward linkage raw materials and accessories are allowed to sell for export oriented
industries inside and outside EPZs.

4.   Import and Export on CIVI/CMP/CMT basis are allowed.

5.   Import from Domestic Tariff Area (DTA) and 10% export to DTA are permitted.

6.   Freedom from national import policy restrictions.

7.   Import of raw materials also allowed on Documentary Acceptance (DA) basis.

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8.   Advantage of opening back to back LC for certain types of industries for import or raw
materials.

9.   Import of goods from the domestic tariff area is permissible.

Operation:

1.   Re-location of existing industries from one zone to another within the country is permissible.

2.   Sub-contracting within EPZ is allowed.

3.   No permission required for expansion of the project or product diversification.

4.   Inter-zone and intra-zone export are permitted

5.   All customs formalities are done at the gate site of the respective factory building within the
zone.

6.   Permission for import/export is given in the same day.

7.   Repairing and maintenance of machinery and capital equipment from domestic tariff are
allowed.

Employment:

1.   Liberal employment of foreign technicians/experts is allowed.

2.   Foreigners employed in the zones enjoy equal rights similar to those of Bangladesh nationals.

3.   Law forbids formation of any labor union in the zones. Strike within the zones is prohibited.

    

One Stop Facilities:

1.   BEPZA offers One Window Same Day service.

2.   Simplified project approval procedure.

3.   Work Permits issued by BEPZA.

4.   Import and Export Permits issued by BEPZA within the same day through automation system.
14

5.   Customs clearance is done at the factory site.

6.   Investors are required to deal only with BEPZA for Investment and all other operational needs.

 Transfer of Technology

Technology transfer or spillover constitutes one of the most important dynamic effects expected of
foreign investment. The field survey reveals that in a relatively simple industry with no proprietary
technology, such as RMG and footwear, technology transfer takes place readily both inside and
outside the EPZs, though on a very limited scale. The transfer is from foreign technicians and
managers working together on factory floors, from foreign buyers to local firms, and through
consultants, movement of employees, visits to plants abroad, and so forth. In the case of skill
transfer, we found in our interview with a number of factory managers in the EPZs indicate that the
factories in the EPZs contribute significantly to workers‟ technical production and factory
management skills even though the acquisition of broader management capability or marketing
skills is very slow. There are quite many instances in both CEPZ and DEPZ that technicians and
managers who have acquired the ability to compete in the world market have carried this expertise
to the rest of the economy. To foster such mobility and make it more productive, the business
environment outside the EPZs must be rationalized as well, through deregulation and import
liberalization (for healthy competition) and industrial restructuring (for efficient production).

 Geographical Separation:

Export processing zones (EPZs) are industrial estates that are fenced in for producing manufactured
goods for export. In short, they are trade enclaves that import raw materials, process them, and then
export to the world market.

 Development of Human Resources

Changing competitiveness in the global markets has created new challenges for business
organizations as well as individuals. To cope with this changing environment, human resource
management (HRM) practices are expected to play a more vital role in firm performance
improvement especially those in industrial zones in less developed economies like the Dhaka
15

Export Processing Zone (DEPZ) in Bangladesh. This study investigates the impact of HRM
practices on firm performance in a sample of 53 DEPZ enterprises with a sample of 216
respondents. Formulated hypotheses on the HRM bundles of practices were analyzed using factor
analysis and regression analysis. It is found that HRM practices had a significant and positive
association with firm performance. Finally, a conclusion is given based on the empirical findings of
this study which have implications and consequences for HRM practices in the studied institutions.

 Expansion of International Economic Backward Linkage

The extent of which backward linkages between foreign firms and host economies is often
considered an important precondition determining whether, and to what extent, FDI contribute to
host economies. While there is a large literature on backward linkages and their conditions, e.g. on
clusters and national innovation systems, studies that particularly deal with linkages between EPZs
or EPZ firms and host economies are sparse. Moreover, the literature that does exist suffers from
the evaluation problem described earlier – there is no real agreement on how to capture the effect of
linkages, nor evidence of the extent to which linkages are actually created in practice. Likewise,
existing studies usually consist of one or few case examples from which it is extremely difficult to
draw any general conclusions. Furthermore, the cases cited are often the same (e.g. Malaysia,
Mauritius, Mexico) while a large number of EPZs in less developed countries (not least in Africa)
remain unexplored. Thus, the following attempt to explore backward linkages from EPZs to host
economies in terms of local sourcing of inputs is based on single cases, from which generalizations
(if at all) should be made with caution only. The section goes on to look at two related issues,
namely technology diffusion and learning opportunities from EPZ development. The extent to
which backward linkages have been a concrete objective of EPZ development varies between EPZs
and between countries, though they appear to be the subject of increasing attention by those
designing EPZs. In some cases, use of domestically produced intermediate goods is encouraged by
host country governments, but the extent to which this happens in practice is difficult to determine.
It has been stated in the literature that countries that have integrated EPZ activities with the rest of
their economies, and formed clusters of suppliers around EPZs, benefit the most from EPZ
development. However, accepting this as a general conclusion is problematic for reasons similar to
those mentioned above - no comparisons are available of how „clustered‟ versus „random‟
domestic procurement affects the economy. Nor is it clear what the term cluster really means when
used to describe EPZs – other than that EPZ firms and some suppliers merely locate close to each
16

other within or around a certain EPZ. One of the few things that is clear is that the extent to which
sourcing by EPZ firms is done locally is a critical factor in determining their contribution to host
country economic performance, since it improves the ratio of net to gross exports. One recent study
that attempts to make some general points concerning the conditions under which EPZ firms form
backward linkages to local firms and economies by purchasing intermediates of local origin and/or
using domestic raw materials is Jenkins. He states that this differs according to a number of
firm/industry related factors. It is important to note that even this study is limited to describing
results found in Costa Rican EPZs, meaning that the findings may be specific to this context.
Moreover, Jenkins aims more at identifying which backward linkages are associated with which
factors, rather than at determining the causal mechanisms behind them. The following outline of
Jenkins‟ points on which type of industries and firms are likely to create backward linkages is
therefore complemented by other studies as well as the authors‟ own research.

 Brand product made in EPZ

The enterprise are exporting world famous brand products like Nike, Reebok, Lafuma, H & M
(Sweden), GAP, J.C. Penny, Wal-Mart, Kmart, OSPIG (Germany), Mother Care (UK), Lee,
Wrangler, Dockers, NBA, Tommy Hilfiger, Out Door, Adidas, Falcon (USA), Edie Bauyer, Eagle,
Releigh (UK), Emmilee, Free Spiril (UK), Miles (Germany), Brouks, American Eagle, Hi-Tech
(UK), Decathlon, Phillip- Maurice (UK), Federated, Styles Co, SAG Harbour (USA), Wins More,
H & M (SWEDEN), LL Bean, Target, Autica, Disley, Vans, Vftnfcamera Lens (IO Parts) Konika,
Minolta, Golf Shafts, Abu Garcia, Mobile Parts of Sony, Automobile Parts of Nissan, Mitsubishi &
Hino.

Hurdles that Kawasaki may face

17

 Foreign exchange earnings gains may have been overstated

Foreign exchange earnings gains may have been overstated. First, in the case of foreign owned EPZ
firms, foreign exchange benefits accrue to Bangladesh under specific circumstances. According to
WARR (1989) this process only occurs when the foreign owned firms exchange their foreign
earnings into domestic currency at the official rate (through the central bank) to pay labor wages
and other expenses incurred in the host country. Unless Bangladesh adheres to a floating exchange
rate system the government's rates do not usually represent the true shadow price of the foreign
exchange. The shadow price of the foreign exchange is higher than the official exchange rate"7. As
such, the government of Bangladesh taxes the EPZ firms.

 Net exports not as impressive because of high import content of

exports

The statistics on net exports have not been as promising. For instance, Amir Ahmadi and Wu (1995)
argue that among the Asian hosts of EPZs net export growth performance has neither been
consistent nor impressive. The dichotomy between the performances of gross and net exports is due
to the fact that zone firms import a large portion of their raw and intermediate input, leading to
weak or non-existent backward linkages with the domestic markets. The Jamaican zones are a case
in point. In 1996, total gross exports for the three Jamaican zones were US $235.4 M while their
total net exports only summed to US $28.90 M (see Table 4) 20,21 For Bangladesh's CEPZ zone
the ratio of net to gross exports has improved since the mid- 1980s (from an average of 11 percent
in the second half of 1980s to an average of 20 percent in the first half of the 1990s). However, 94
to 97 percent of total imports into Bangladeshi zones are foreign22, signaling weak backward
linkages (see table 4). Jenkins et. al. (1998) report the same phenomenon in the case of Central
American zones. For instance, the share of domestic raw materials and supplies in total production
averaged 6.0 percent in Costa Rica and Guatemala during 1994-96.

 Cost of Human Capital Development

18

After setting up a factory inside EPZ, the host company has to hire employees from the domestic
country. In this case, most employees are unskilled or semi-skilled. They don't possess any idea
about technologies and discipline for working in the industrial environment. The host company has
to bear a huge cost for training of the employees to make them skilled personnel. This is a
significant drawback of setting up a factory inside EPZ.

 Challenges EPZ firms face on sourcing local suppliers

80% of the 30 visited EPZ firms were complaining about the quality of the inputs from the local
suppliers. The respondent asserts that the local suppliers use poor quality tools and inputs in the
Production process, which leads to poor quality of outputs. Another challenge faced by EPZ firms is
the failure of local suppliers to meet the terms of the contract, the findings revealed that most of the
suppliers are not able to supply the required quantity on regular basis as per agreed terms of the
contract.

 Limited Transfer of Technology

Technology transfer refers’’ to a ‘’process whereby technology is moved from one physical or
geographical location to another for the purpose of application’’. The transfer can take place either
domestically from one sector or firm to another or, it can take place across national boundaries,
from one country to another.

One of the objectives for establishment of EPZs in Bangladesh is to encourage transfer of new
technology to local businesses. A number of EPZs have made attempt to transfer technology this
way, and the results are mixed. Some have managed, while others have failed.

According to JUMA et al (2005) technology transfer through EPZ can work only when the long
term objectives of EPZ are designed with the long-term technological capability building in mind;
and the best strategy is to enhance linkage capabilities. These are the skills needed to transmit
information, skills and technology to, and receive them from, component or raw material suppliers,
subcontractors, consultants, service firms, and technology institutions. Such linkages affect not only
the productive efficiency of the enterprise, but also the diffusion of technology through the
economy and the deepening of the industrial structure, both essential to an enterprise development.
19

Moreover, in term of transferring technology through national boundaries, when EPZs need to set
up a manufacturing company, they need trained manpower from abroad as well as high
performance machinery but since they tend to return to their home country they usually do not want
to bring high quality equipment to this country.

 High Cost of Imported Materials

An Export Processing Zone (EPZ) is a Customs area where one is allowed to import plant,
machinery, equipment and material for the manufacture of export goods under security. Countries
like Bangladesh are mainly dependent on the outside world for the amount of equipment they need
for their export processing zones. when foreign manpower realizes that without their equipment a
country cannot complete the whole work of their export processing zone then they sell this
equipment at high prices.

 High Cost of Provision of Infrastructure

Building infrastructure in Bangladesh is costliest in the world, the World Bank said in a briefing on
the national budget. The global lender made the statement as it presented a comparison of
infrastructure spending from other countries. An EPZ’s basic infrastructure includes electricity,
water and gas. The amount of electricity is very less than the demand of Bangladesh due to which
the electricity bill is comparatively higher. Adequate pure water is required to sustain the
production activities of an industrial plant which is very scarce in Bangladesh due to which the
industrial establishments have to spend huge amount of money. Again rent of building is
comparatively higher here.

Competitor’s Choice
20

BHL – Bangladesh Honda Private Limited is a Japanese origin brand that used to bring bikes
manufactured in India to the Bangladeshi market, but they recently opened an assembly and
manufacturing plant in the country, which has helped them become the fastest-growing motorcycle
brand (by sales) in Bangladesh. We discuss this company because it is similar to our concern in
multiple ways.

Taking a customer-oriented approach, Honda expands its business in Bangladesh to deliver

products that meet customers’ needs in the growing market. As one of its core responsibilities, BHL
is leading the development of the country’s motorcycle industry and contributing to the
industrialization of Bangladesh. The company has relocated its factory, officially inaugurated on
November 11, 2018, from Gazipur to the new location in the Abdul Monem Economic Zone.

Plant Inauguration Ceremony of BHL

With its partner Bangladesh Steel and Engineering Corporation (BSEC) under the Ministry of
Industries, Honda has invested a total of 2.3 billion Bangladeshi Taka on buildings, equipment,
facilities, and a land area of 25 acres for the new factory in Munshiganj District, Dhaka Division.
The factory, which currently occupies one-third of the property, took a year to complete following
the groundbreaking ceremony held on November 5, 2017. It will have an initial annual production
capacity of 100,000 units of motorcycles. In line with market trends, BHL plans to continue to
21

invest in expanding its production capacity to 200,000 units by 2021 and will build its full-phase
factory on the remaining two-thirds of the property to accommodate future market growth.

The motorcycle industry in Bangladesh is undergoing rapid growth with strong government
support, including promoting a localization policy and reducing additional duties in December
2016. This enables BHL to enhance the localization of parts, which will increase cost-effectiveness
for the models of motorcycles produced at the new factory. For example, the new factory introduces
welding and painting sections for localization with technical support from Honda Motor in Japan.
Initially, BHL will localize the body frame and swing arm and then gradually expand localization to
other parts assembled at the new factory in the future.

The new factory opens up more opportunities for employment and technology transfer to local
associates. Currently, the company has 390 associates, and BHL plans to increase the number of
associates in line with its business expansion. The company will also provide associates with
training in the skills necessary to deliver the best quality products that will bring joy and satisfaction
to Honda customers.

Mr. Yoshi Yamane, Senior Managing Director and Chief Officer for Production Operations of
Honda Motor Co., Ltd., said, “Honda’s 2030 Vision states ‘Serve people worldwide with the joy of
expanding their life’s potential’ and ‘Lead the advancement of mobility and enable people
everywhere in the world to improve their daily lives.’ The inauguration of the new factory
demonstrates one of the most important initiatives to realize this 2030 Vision. Bangladesh Honda
will aim to develop further by providing reliable, quality products from this new factory.”

Mr. Yuichiro Ishii, Managing Director and CEO of BHL, said, “As the leading motorcycle
manufacturer, and with the guidance and expertise of Honda Motor in Japan, we believe that the
motorcycle industry will expand and contribute to the national economy by generating more
employment, developing a skilled workforce, transferring technology, encouraging the growth of a
parts supplier industry, and attracting more direct foreign investment.”

Source: https://www.bdhonda.com/media-center/pr-details/80

Factory Location: Honda has recently revealed its new plant in Bangladesh, as part of the
country’s aim to establish up to 100 new economic zones across the region, as a core segment of its
2030 vision to “lead the advancement of mobility and enable people everywhere in the world to
improve their daily lives.”
22

Abdul Momen Economic Zone Master Plan

The factory, situated in the Abdul Monem Economic Zone at Gazaria, under the Munshiganj
district, is set to manufacture new motorcycles to tackle the ongoing demand for versatile transport
within its dense population. Spanning 25 acres, the factory will enable the bikes to be developed
locally, providing greater accessibility and opportunities for local workers. The zone is situated 37
km towards east of Dhaka city adjacent to Dhaka-Chattagram highway near the Meghna-Gumti
bridge. Master plan includes 6.5 km of boundary walls, 10 km of internal roads, 1.2 km of artificial
water body and jetty facility.

Location : Mouza: Char Baushia and Char Jazira, Upazila: Gazaria, District: Munshiganj.

Key Site Facts: Provisions of total 79 plots are there; already Bangladesh Honda Private Ltd. has
taken 10 plots, and Sakata Inx has signed MoU for 2 plots. 33/11 KV substation has been set up,

2.75 MW capacity power plant is in progress. A mini WTP has been established. Internal road
network is in progress.

Land Information: License received for: 189.94 acres and Planned Land for about 500 acres

Existing Utility: 11 KV REB connections, Water supply, internal road

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Suitable Industries: Motor parts assembling factories, Industrial ink, Food processing, and
likewise industries.

Employment Projection: 100,000

Set to provide a capacity of up to 100,000 units of motorcycles per annum, the company will
undergo this joint venture alongside the state-owned Bangladesh Steel Engineering Corporation
(BSEC). By 2021, the plant had a long-term aim to ramp up its production capabilities to deliver
200,000 units per year.

Source: https://www.beza.gov.bd/abdul-monem-economic-zone/

Honda established their plant in an economic zone rather than in an export processing zone because
they already have large factories in the sub-continent (in India and Pakistan), which meet the
demand for parts in the Bangladeshi market. Their only goal was to manufacture motorcycles and
scooters for the Bangladeshi market to avail the opportunity of lower taxes.

As Kawasaki does not own any parts manufacturing plants in the region, it would be beneficial for
Kawasaki to open one in Bangladesh. This plant could also meet the parts needs of the Indian
market, which consists a huge portion of the company’s sales. Also, an assembly plant may be set
up in an economic zone to meet the demand of local markets.
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Analysis

EPZ has a lot of advantages with some demerits. If we establish our company in an EPZ, we can
we can enjoy many facilities. The share of EPZs in the foreign exchange earnings through the
exports of manufactured goods also shows the same trend over the corresponding period
reflecting fast decline in the relative share of the DTA in both total exports and the exports of
manufactured goods and the resulting foreign exchange earnings of the country, so we can get
benefits of increased foreign exchange through increased exports. BEPZA offers many fiscal and
non-fiscal incentives for the investors in the EPZs. These incentives and facilities provided by
the government will sure help us thrive in this region. Technology transfer or spillover
constitutes one of the most important dynamic effects expected of foreign investment. The extent
of which backward linkages between foreign firms and host economies is often considered an
important precondition determining whether, and to what extent, FDI contribute to host
economies. Studies that particularly deal with linkages between EPZs or EPZ firms and host
economies are sparse. The EPZ will have some resources that can attract investment such as
natural resources, cheap skilled labor, or logistical advantages. Nations can also encourage
investment in the EPZ by offering expedited licensing or building permits, minimal customs
regulations, duty-free tax incentives, such as a ten year tax holiday, and developing infrastructure
to investor's requirements.

Besides enjoying a lot of facilities, Kawasaki will face some hurdles under EPZ. For minimizing
the problems, Kawasaki can adopt some measures. Most of the EPZ firms don’t have strong
backward linkages with the local economy as they source their inputs from other suppliers
outside the country. Kawasaki can provide the local suppliers with market knowledge so that the
suppliers can supply the desired quality based materials to Kawasaki. If Kawasaki imports all the
raw materials from abroad, the cost of import will be high and as a result the gain from export
won’t be impressive. In that case, Kawasaki may provide technological help to domestic
producers to ensure the proper quality and quantity of the raw materials. The training cost of
personnel is a big hurdle that Kawasaki may face. So, it will be better if Kawasaki recruits
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skilled employees who possess enough knowledge about industrial environment and are
proficient in using technologies. In case of infrastructural problems, Kawasaki can take the
advantage of facilities offered by BEPZA. BEPZA offers: Electricity, Water & Gas (basic
infrastructure), available fully serviced plots, Factory building available on rental basis, Enclave
for workers Dormitory & Day Care Centre, available warehouse. Kawasaki can also seek low
interest loan from Bangladesh government. One approach for implementing a successful
technology transfer in EPZ Kawasaki can try to integrate strategy, organization, and processes
both within and across countries. The key building blocks for this approach can be well-defined
product development and transfer strategy, Proactive decision-making through executive
sponsorship of projects, Standard performance Measures for functions, processes, and teams,
High-performance, cross-functional teams. Like any good strategy, technology transfer should
also be customer based.

Recommendations

Our following study suggest that Kawasaki should build its manufacturing plant in an EPZ as it
will fulfill the demand for parts in this region. The benefits an EPZ will provide is far greater
than benefits provided by other zones in this region. Bangladesh has 8 EPZs and Kawasaki may
choose the most convenient one. Very few measurements are necessary to counter the demerits
of EPZ. The government is very helpful to foreign direct investors, so our company will not face
much problem while stablishing its manufacturing plant. Other incentives provided specially for
foreign direct investors will also help the company to thrive fast.

The competitor’s choice surely proves potential economic growth in this region. Honda and
Runners surely proved that this region is very convenient for manufacturing and processing.
Bangladesh is a bridge between South Asian Countries and has low-cost labor that help
manufacturing company to import and export easily with low cost of goods sold.